Automatic Gratuities May Be Headed Towards Extinction in 2014
A new IRS ruling has resulted in some frustrated restaurant owners and disappointed servers, and could possibly end a practice that's bugged many restaurant patrons for years. At the center of this controversy is the automatic gratuity, that compulsory charge many eateries tack on to your bill when you dine with a large group of people. As of January 1, 2014, the IRS will start treating automatic gratuities as a service charge, a change that's got the food service industry up in arms.
Servers May Feel the Pinch
When the IRS ruling, which was enacted in June 2012, starts being enforced in January, servers will no longer be responsible for self-reporting their income from automatic gratuities to the IRS. Instead, restaurant owners will have a choice: they can start adding those automatic gratuities into a server's wages (which would mean more paperwork), or they can stop charging customers for automatic gratuities altogether. According to Denise Wheeler, an attorney who spoke with the Wall Street Journal, it's likely that "the vast majority of restaurant owners will discontinue the practice."
This could be bad news for servers who depend on tips because their hourly wages are usually far below the minimum wage. When the restaurant where he works stopped charging automatic gratuities, server Michael Turney, who spoke with USA Today, noticed a significant change in his income. "I feel like larger parties don't tip as well as they should for the amount that they spend at the restaurant," Turney said. "When they spend $200 and leave $20, you're losing out on about $16 or $17." He went on to say that some servers at the restaurant are now hesitant to take on large parties, because they can make more tips on smaller groups.
Some Customers Welcome the Change
While restaurateurs and servers may resent the IRS's automatic gratuity rule change, several customers have been vocal in their hatred of the practice. "Even if you generally tip more than 18%, automatic gratuities can't help but rub you the wrong way," read an editorial for the Chicago Tribune. "From a customer's perspective, a predetermined tip is mighty presumptuous. A server who doesn't have to earn his or her tips has little incentive to try, and the customer has no choice but to pay a premium anyway." The editorial also pointed out that a customer is rarely notified when an automatic gratuity is charged, which may lead them to leave a larger tip than they'd intended. "That's dishonest," the writer asserted.
We think it's unlikely that many waitstaff would be completely stiffed if all restaurants were to abandon automatic gratuities. As we've previously mentioned, a DealNews poll revealed that more than half of restaurant goers will leave a tip, even if they've received terrible service. At least one restaurant company is taking the rule change as an opportunity to explore new ways of encouraging customers to tip. According to the Wall Street Journal, Darden Restaurants Inc., which owns Olive Garden, LongHorn Steakhouse, and Red Lobster, has been "testing a new system in which the restaurants include three suggested tip amounts, calculating for the customer the total with a 15%, 18%, or 20% tip on all bills, regardless of party size."
There's no question that the IRS ruling will have a big effect on the restaurant industry, but it remains to be seen whether the change will lead to the annihilation of automatic gratuities. One thing is certain, though: Customers should always double-check their restaurant checks to make sure they're leaving the tip they intended.
Readers, how do you feel about automatic gratuities? Do you think servers deserve the compulsory sum for dealing with larger parties, or would you rather be the judge when it comes to leaving tips with your money? State your case in the comments below!
Ah, O.K. But you seem to single out the tax man for blame when there are three parties to blame:
•Those servers in the past and those today who lied/lie about how much they got/get in tips, which caused the authorities to find a way to get some of the taxes that servers should be paying but are not
•The authorities whose guesstimate of the average fraction you receive in tips (12%) is too high (it may not be high enough for others, though)
•Customers who don't tip or don't tip enough
@boiceer "pubic hair in my soda"
WAT
I don't see frequent examples of great work ethics by workers either inside or outside the restaurant service industry, so my baseline for service (and receiving an average tip of 15%) is very low:
A) Keep my drink full... I don't enjoy paying to be thirsty
B) Fix mistakes efficiently... wrong order, cold food, pubic hair in my soda, etc.
C) Be polite and friendly
If you WOW me with exemplary service, I will WOW you with an excellent tip. In truly outstanding cases, I've let the server know they were doing an amazing job and gave them a 100
%, 200%, or 300% tip. I consider it a charitable donation to the poor. :o)
I think that the gratuity system helps ensure better service and it is unfortunate that we can't extend this payment model across all employment. Performance = pay
Okay, technically yes servers are in a low tax bracket because the income level is low. However servers are taxed heavier in comparison to other minimum wage jobs. For example, where I work we are required to claim at least 12% of our sales at the end of each shift. So say there's $1000 in sales, I have to claim at least $120 in tips, even if I don't make that much (hence the reason why getting no tip actually causes me to lose money). We get taxed on these tips as "earnings" resulting in more money being withheld from our actual paychecks. So I would definitely consider a paycheck of $34.27 for 40 hours of work (personal example) being heavily taxed when at $8/ hour that paycheck should be over at least $200.
How is the server supposed to know the disappointing (for them) amount was left because of their performance and not due to the customer's stinginess or ignorance? What would you do if tipping were abolished and you receive subpar service? If you'd tell the manager, why not tell the manager now?
@tnguyen74115
Isn't mandatory sharing your tips with the busboys (and other staff) illegal or is it illegal on a state-by-state basis?
@JG_720
"Heavily taxed" doesn't mean what you apparently intend it to mean. It means that one pays a high percentage of one's income in taxes. Considering the fairly low incomes that many (most?) servers make and that tax rates in the U.S. are progressive, you are no doubt _lightly_ taxed. It's not the fault of the IRS that your after-tax income is so low when your pre-tax income is low, too. And I don't see how the government chooses this system; I'd say it just accommodates it.
Good service to the customer, not a free $ for coming in. So pay then pay them a wage like everyone else and if you work you get to stay and end the games. If not you get replaced and go home and they hire someone to work. About the only thing free now days is Obama care that others work for your payment while you do not work, Hmmmm... get your tips for free 15% to 20%, without working but just show up to collect them no checks or balances to see if you earned them , and your Obama care, get both for free, best of both worlds then soon all business will close.